Volkswagen Test Drives New American Worker

It took 20 years but Volkswagen is finally going to try making cars in the United States again. Today the German automaker announced plans to invest $1 billion on a production facility in Chattanooga, Tennessee that will turn out vehicles for the North American market. The move is seen as the only way the company can, given the strong euro, hope to increase its meager U.S. market share.

The initial coverage of the announcement I saw did not mention the circumstances under which VW abandoned its previous U.S. manufacturing initiative. In April 1978 the company opened an assembly plant in Pennsylvania to produce its Rabbit model. A few months later, the workers, represented by a newly formed local of the United Auto Workers, shocked the company—as well as their parent union—by staging a wildcat strike to protest the fact that they were being paid less than their counterparts at the plants owned by the Big Three. Stopping production of the Rabbit, the workers chanted “No Money, No Bunny.”

The workers eventually returned to work, but labor relations at the plant remained tense as the UAW, compelled by members of the local, pressured the company to narrow the wage gap. VW was also confronted with a lawsuit charging that it discriminated against black employees. Finally, in 1988, VW gave up and closed the plant.

It appears that VW is being more cautious this time. It has followed in the footsteps of other foreign automakers that have located their U.S. plants in Southern right-to-work states or other areas with low union density. Thus is Toyota in states such as Kentucky, Alabama and Mississippi; Nissan in Tennessee and Mississippi; BMW in South Carolina; Mercedes in Alabama; Kia in Georgia; and Hyundai in Alabama. The scarcity of unions may be the real commonality that Tennessee Gov. Phil Bredesen had in mind when he said today that VW chose his state because of “shared values.”

The Southern states have rewarded foreign car companies not only with non-union labor but also with lavish economic development subsidies—in many cases more than $100 million per plant. Volkswagen’s package from Tennessee is still being negotiated. Gov. Bredesen today said only that the deal is “complicated,” which should probably be taken as code for “extravagant.”

Government giveaways and docile labor: Volkswagen may not have had it so good since the era when the People’s Car was born.

Shareholder Litigation Not Yet Extinct

Once feared class-action lawyers Melvyn Weiss and William Lerach have been disgraced after pleading guilty to charges of paying off plaintiffs, but the type of lawsuit they promoted—the shareholder derivative action—is not extinct. It has just come to light that the Coca-Cola Company recently agreed to pay $137 million to settle such a suit in which plaintiffs led by two union pension funds accused the soft-drink company of artificially inflating sales figures to boost its stock price.

The case, in which Lerach (photo) was originally one of many lawyers involved, was filed in October 2000 in federal court in Atlanta (Northern District of Georgia, Case No. 00-cv-02838-WBH; later consolidated with another action). The lead plaintiff, the Carpenters Health & Welfare Fund of Philadelphia, held about $80 million in Coca-Cola stock at the time. The company dismissed the charges as “ridiculous” in a press release and later claimed in its 10-K filing that it “has meritorious legal and factual defenses and intends to defend the consolidated action vigorously.”

At the center of the case were allegations of “channel stuffing” (pressuring bottlers to make large purchases of concentrate beyond their needs) and failing to write down the value of impaired assets in places such as Russia and Japan.

Coca-Cola has not made it clear why it decided to settle a case it had fought for nearly eight years. The capitulation was all the more surprising in that it occurred shortly after the company prevailed in Delaware Supreme Court in another derivative suit brought by the Teamsters in 2006. In that case, the union charged that Coca-Cola used its control (35%) over its largest bottler, Coca-Cola Enterprises (CCE), to maximize its own profits at the expense of CCE’s shareholders.

The company also faced a lawsuit brought against it and several affiliates in federal court in Miami concerning the murder of trade unionists at Coca-Cola bottling plants in Colombia. The company got the case dismissed, but it is still being challenged by the tenacious Campaign to Stop Killer Coke (which uses the provocative photo above on its website), the aim of which is to pressure Coca-Cola to get the bottling plants to end their alleged cooperation with Colombian paramilitary groups believed to be behind the murders.

Unions Developing A Global Reach of Their Own

Newspapers in both Britain and the United States have reported in recent days that two major labor organizations are preparing to announce the creation of the first trans-Atlantic union. The merger will bring together the United Steelworkers, the leading U.S. union in manufacturing and heavy industry, and Unite, the mega British union formed by the joining of Amicus and the Transport & General Workers Union last year.

The step does not come as a surprise, since the unions created a strategic alliance in 2005 and announced their intention to wed about a year ago. But the formal marriage of the organizations will, nonetheless, represent a milestone in labor history. For decades, large corporations have been operating across national borders and in recent years have increasingly formed international mergers and joint ventures. Unions have expanded their international solidarity efforts but have largely remained tied to single countries. The Steelworkers-Unite initiative will be a major step toward the globalization of labor organizing. In its report, Britain’s Telegraph said the combined entity could be named the United Global Workers’ Union, which sounds like something out of science fiction.

The current scope of the 850,000-member Steelworkers is illustrated by the fact that a global search of 10-K filings with the SEC reveals that more than 100 publicly traded companies report having North American workers represented by the union. These include industrial giants such as Dow Chemical, Alcoa, International Paper and Goodyear Tire & Rubber that all do a substantial amount of overseas business. Dow Chemical, for example, derives 66 percent of its revenue from outside the United States. Unite is also a highly diversified union that represents workers at the UK operations of global companies such as Airbus, BP, British Airways, Michelin, Shell and Unilever. Steelworkers President Leo Gerard told the Wall Street Journal that among the organizing targets of the combined union could be India’s Tata Steel Ltd., part of the Tata Group conglomerate.

It will be interesting to see how labor relations change once one union, at least, can start to match giant employers in its global reach.

The Fortune (Mostly Non-Union) 500

Fortune magazine has come out with the latest edition of its list of the 500 largest publicly traded U.S. corporations, and all the attention will be paid to which companies rank higher or lower based on revenue. For the average person, another measure of the performance of those giant corporations may be more relevant: the extent to which they are depressing wage rates by getting rid of unions or continuing to keep them out of their operations.

One way to gauge this is to look at the new 10-K filings that companies have been issuing in recent weeks. Each of those documents—annual reports submitted to the U.S. Securities and Exchange Commission—has a section on employees in which companies have traditionally given an indication of the extent to which their workforce is unionized.

I decided to look at these sections for the top 50 on the new Fortune list. I found that, of that group, only five reported that a majority of their U.S. employees are covered by a collective bargaining agreement: General Motors, Ford, AT&T, Kroger and UPS. An additional half dozen reported that a minority of their U.S. workers have union protection: Verizon (40%), Boeing (36%), General Electric (15%), Costco (11%), AmerisourceBergen (4%) and Wellpoint (“a small portion”). Two companies—United Technologies and Marathon Oil—mention unions but don’t indicate the extent of their presence.

The remaining 35 companies (State Farm and Freddie Mac don’t file 10-Ks) make no reference to unions or declare they are union free. Home improvement retailer Lowe’s almost seems to be gloating when it says:

As of February 1, 2008, we employed approximately 160,000 full-time and 56,000 part-time employees, none of which are covered by collective bargaining agreements.  Management considers its relations with its employees to be good.

And, in the absence of a union, who’s going to tell them otherwise?

A few of the more than 30 companies in the group that don’t mention unions are known to engage in some collective bargaining (the big oil companies, for instance), but it’s interesting that they deem it so insignificant that it need not be mentioned in a document that is supposed to warn investors of potential risks such as work stoppages. Unfortunately, the SEC rule (Regulation S-K) governing what is supposed to go into 10-Ks is not very explicit about disclosure requirements relating to labor relations, but the general principle is that matters material to the financial prospects of the company have to be reported.

It appears that most big companies have reached the point that the union presence in their workforce is not material. That may allow investors and managers to breathe easier, but it explains a lot of what is wrong with the U.S. labor market.

Look here for information on one proposed remedy for declining union density—the Employee Free Choice Act.

Hillary Clinton is Ahead in the Wal-Mart Election

It hasn’t been a great week for Wal-Mart, what with having to back down from its demand that the family of brain-damaged former employee Debbie Shank reimburse the company’s health plan for her medical treatment.

Yet in an interview with the Financial Times published Thursday, Wal-Mart CEO Lee Scott indicated that in a wider sense the company is doing well:

Mr Scott expressed satisfaction that in spite of the union campaign, Wal-Mart’s record had not become an issue in the Democratic primaries. Hillary Clinton served on Wal-Mart’s board from 1986 to 1992 when her husband was governor of Arkansas, the retailer’s home state.

It’s easy to forget it was once thought that this presidential race would focus on the impact of Wal-Mart on the economy and the labor market. In January 2007 a columnist for U.S. News wrote: “The ginormous retailer is sure to be a frequent target for Democrats during the 2008 presidential election.” Barack Obama made an issue of Clinton’s tenure on the Wal-Mart board during a debate in January but has not had much to say about the company since John Edwards left the race. Clinton, far from attacking Wal-Mart, has had to contend with investigations, such as one done by ABC News in late January, showing that during her time as a director she remained silent about the company’s assaults on union organizing drives. Clinton responded by saying her views had changed and that she is now a strong supporter of unions.

Despite this professed change of heart about the Wal-Mart philosophy of labor relations, it appears that Clinton is the favorite presidential candidate among those working at the company. A search of individual campaign contribution data on the Open Secrets website shows that Wal-Mart executives and other employees have contributed far more to Clinton— $22,000—during the current election cycle than to John McCain or Obama, each of whom has received $3,700. (Note that only those contributing $200 or more have to list an employer. The totals were derived by searching both “Wal-Mart” and “Walmart” in the employer field.)

The Wal-Mart contributions are a minuscule portion of the more than $160 million Clinton has raised, but it is notable that among those giving their individual maximums to the New York Senator are two of Wal-Mart’s executive vice presidents—Thomas Hyde and PR guru Leslie Dach. Either they know something we don’t about Clinton’s current views, or this, like the company’s previous hard line in the Debbie Shank case, is an example of how Wal-Mart executives are often thick-headed about what is really in the company’s best interests.

Contractor in Passport Scandal Called Anti-Union

Stanley Inc., one of two federal contractors implicated in the scandal over unauthorized viewing of the passport records of presidential candidates, has also been embroiled in a controversy over its labor practices. The United Electrical workers union (UE), which got involved in organizing Stanley workers who process immigration records, called the company’s opposition to the drive “one of the most intense and brutal anti-union campaigns UE has faced.” UE is a rank-and-file-oriented union not affiliated with the AFL-CIO or Change to Win.

Stanley, a $400 million company that depends entirely on the federal government for its business, won a contract last year to take over operations at a 400-employee processing center of the U.S. Citizenship and Immigration Services (USCIS) in St. Albans, Vermont. The contract also covered another center in Laguna Niguel, California. The facilities handle citizenship applications for USCIS, which is part of the Department of Homeland Security.

As it was about to assume control late last year, Stanley announced that it would be changing job classifications at the facilities, resulting in a pay decrease of about 12 percent for up to half the workers. Vermont Sen. Bernie Sanders called on the Labor Department to investigate what he charged was a violation of the Service Contract Act.

Stanley’s move also prompted the union organizing drive. The National Labor Relations Board scheduled nine different elections to reflect the fact that some of the workers are employees of subcontractors such as Northrop Grumman. UE official Chris Townsend told me that Stanley employed a variety of union-busting tactics—from hiring the union-avoidance law firm Seyfarth Shaw to forcing workers to watch propaganda videos. Townsend says workers were held in captive-audience meetings for up to one-quarter of their shifts in the period leading up to the elections—this at a time when the backlog of citizenship applications remains a serious problem. Stanley also pressured its subcontractors to adopt the same tactics of intimidation, Townsend added.

Given these conditions, it is remarkable that UE won six of the nine elections held at various times over the past two months. Townsend estimates that his union now represents about 714 of the 950 workers at the two facilities.

Stanley’s website brags about its inclusion on the Fortune magazine list of the “100 best companies to work for.” Most of the workers in St. Albans and Laguna Niguel apparently beg to differ.